Problem: Bill Jones, Superintended of Griggs Company’s Milling Department, is very happy with his performance report for the past month. The report follows:
Griggs Company
Overhead Performance Report-Milling Department
Actual Budget Variance
Machine hours 30,000 35,000
Variable manufacturing overhead:
Indirect labor $19,700 21,000 1,300 F
Utilities 50,800 59,500 8,700 F
Supplies 12,600 14,000 1,400 F
Maintenance 24,900 28,000 3,100 F
Total variable manufacturing
Overhead 108,000 122,500 14,500 F
Fixed manufacturing overhead:
Maintenance 52,000 52,000 0
Supervision 110,000 110,000 0
Depreciation 80,000 80,000 0
Total fixed manufacturing overhead 242,000 242,000 0
Total manufacturing overhead $350,000 364,500 14,500 F
Upon receiving a copy of this report, the production manager, commented,” I’ve been getting these reports for month’s now, and I still can’t see how they help me assess efficiency ands cost control in that department . I agree that the budget for the month was 35,000 machine-hours, but that represents 17,500 units of product, since it should take two hours to produce one unit. The department produced only 14,000 units during the month, and took 30,000 machine hours to do it. Why do all variances turn up favorable?”
Required:
1. In answer to the production manager question, why are all the variances favorable? Evaluate the performance report.
2. Prepare a new overhead performance report that will help the production manager assess efficiency and cost control in the milling department.(include both variable and fixed cost in the report)